New legislation aimed at protecting vendors against unscrupulous developers is still far from perfect

A number of developers, who consider that their interests are not sufficiently protected and that they are subject to technical and financial constraints, sometimes prefer ignoring the provisions of the Moroccan law on off-plan sales — vente en l’etat futur d’achevement (VEFA) — which has been in force since November 2003.

These provisions are of mandatory application whenever a developer under-takes to build a property within a predetermined timeframe and a buyer undertakes to pay the purchase price in instalments corresponding to the completion of construction milestones.

Contractual documentation

The contractual VEFA documentation on sales includes:

. a specification book defining the project, the nature of the works to be completed and the completion and delivery timeframe;

. a preliminary sales contract identifying the parties, the land title, the building permit references, the property sold, the final price and the terms of payment; and

. a final sales contract reiterating the contents of the preliminary sales contract, that will effect the transfer of property to the buyer.

However, a common practice among developers is requiring the conclusion of a reservation contract. In this case, the buyer should ensure that the down-payment is refundable on the conclusion of the preliminary sales contract because it could otherwise be considered as an instalment paid prior to the conclusion of this contract, which is null and void.

It should be noted that:

. the preliminary and final sales contract must be drafted by a notary or a lawyer admitted before the Moroccan Supreme Court;

. the preliminary sales contract may not be concluded prior to the completion of the foundations of the ground floor;

. the final sales contract must be concluded within 30 days of the notification to the buyer of a permit to inhabit or a compliance certificate (as applicable) by the developer, itself to be performed within 30 days of the issue of such permit or certificate;

. the payment of an instalment (there is no minimum or maximum percentage) must be linked to the completion of a construction milestone rather than a fixed date; and

. the transfer of property will only occur upon the recording of the final sales contract with the relevant land conservation office.

Advantages and disadvantages

The regime described above, which aims to protect buyers from being swindled by dishonest developers, has advantages (as it offers certain guarantees), but also contains inconveniences for both parties. For example:

. the law allows for a pre-recording (prenotation) of the sale (which guarantees to the buyer that the property will not be sold to anyone else) but only with the developer’s consent, which is usually refused since any buyer could eventually block the development of the project;

. the developers must secure the refund of instalments paid by the buyer by a bank guarantee or insurance, which expires upon the transfer of property (i.e. the recording of the final sales contract with the relevant land conservation office), but few banks — and no insurers — currently offer such products;

. the regime is not practical for certain types of developments (social housing, mixed-use buildings to be purchased by different entities), as the law is difficult to fully apply due to contradictions or inconsistencies with other laws and regulations;

. the regime provides for automatic penalties in case of lateness in the completion of a milestone or in the payment of the instalment related thereto, but such penalties are capped at 1% of the amount corresponding to the said milestone per month (and capped at 10% per year); and

. the regime provides for an automatic penalty against the defaulting party in case of termination of the preliminary sales contract, but this penalty is capped at 10% of the sale price.

How to finance your purchase

If you decide to go ahead with your plans to purchase a second home in Morocco, despite the inconvenience of the VEFA regime (it is, after all, better than the old regime), local banks offer financing packages to foreigners (up to 70% of the purchase price).

However, beware that the securing of such financing may nonetheless be subject to the provisions of personal guarantees (or cash collateral) or alternative (bridge) sureties by the buyer, as the mortgaging of the asset will only become possible on the transfer of property.

Hicham Naciri is a partner and Richard Cantin a senior associate at Naciri & Associes, Gide Loyrette Nouel in Casablanca.


Author: Hicham Naciri and Richard Cantin